Authors: William D. Cohan
That’s what Blankfein should be most worried about, he said. “Will it be a great firm?” he wondered. “Probably. But will it be a different firm? Yes, and as we know from the way the markets and capitalism work, Goldman’s not guaranteed a place in that kind of pantheon of firms in perpetuity. The biggest danger I think they face is within, not without.”
Charles Elson is both a lawyer and the chairman of the John L. Weinberg Center for Corporate Governance at the University of Delaware. Since his think tank is named after one of Goldman’s most admired former senior partners, Elson has taken a keen interest in the recent events at the firm. “
The fundamental problem [for Blankfein and Goldman],” he said, “is you’ve made a lot of money when everyone else hasn’t, you know? People are angry about it, and frankly, your competitors disappeared, and you were the last person standing, and as the last person standing, you get a bigger piece of, albeit, a smaller pie. But because there are fewer others taking out of the pie, your share gets larger. And you’re in a very tough situation where the government allowed the others to fail, yet allowed you to succeed. He is in—they are in—an almost impossible position, and I don’t know who could’ve done it differently. That being said, obviously, the response [so far] hasn’t worked out so well.”
Jim Cramer, too, is convinced Goldman has flubbed its response so far but also that it is not too late for Goldman to admit to and apologize for its mistakes, to acknowledge the extraordinary lifeline the American people provided to the firm in a time of crisis and then to donate the totality of the 2009 bonuses—$16.2 billion—to a worthy cause, such as to the people of
Haiti. “
You settle with the SEC at all costs,” he said, “at
all
costs you settle with the SEC”—which the firm did during the summer of 2010. “You also say, ‘Look, you know, we’ve been thinking a lot about what happened here and we were very defensive because we thought we did it right. And we thought the people recognized that maybe it was because of our smarts that we did okay, but, you know, as we’ve reviewed the era and what happened we realized we made some mistakes and what we’re going to do—
we
made mistakes, not mistakes were made—and what we’re going to do is we’re going to review what we did
and we’re going to forgo those bonuses even though it’s going to be at a tremendous cost because we paid taxes on those bonuses. But we’re not going to ask for refunds and we’ve heard what the American people said and we’re in this business for the long term and we love our country and we feel very blessed that this country allowed us to make this money so what we’re going to do is retroactively make these changes. And you know what? We don’t even care if you think it’s right. We don’t care. We in our hearts know it’s right. We look at ourselves in the mirror every day, this is what we should have done—it’s never too late to do the right thing. You may think it’s deeply cynical—we know it’s the right thing.’ And then move on.” (With the 2009 bonuses long gone, the firm could still follow Cramer’s advice for the 2010 bonuses, which were $15.4 billion.)
Others, especially former Goldman partners on the banking—as opposed to the trading—side of the business, agree with Elson and Cramer about Goldman’s response to date and wonder whether Blankfein is the right guy to lead the firm through the current morass. What’s needed is a wartime consigliere, they argue, and Blankfein is not that guy. “This is not a good role for Lloyd,” one former partner said. “It’s like having Russell Crowe do a romantic comedy.” He said he feared Blankfein was not being well served “by the people around him but, then again, he chose his people.” (Some even wondered why the Business Standards Committee included no former Goldman partners, like Whitehead or Friedman or Rubin, who might have been able to convey to the current leaders of the firm how things used to be in the good old days.)
A recurring criticism of Blankfein is that he has surrounded himself with like-minded trader types and that he could benefit greatly from having at the top of the firm a more diverse group of senior partners with different perspectives. “Both Lloyd and Gary are valuable guys, but you also need other guys at the top with a different ethic,” another former partner explained. “Then you debate decisions out and you have balance. That has been lost.” He continued, “The guys who succeed in this industry are the guys who say, ‘I care about the reputation of the firm. I care about my reputation. I care about doing the right thing. I care about having a great firm. I care about attracting and retaining the best people. If I do all of these things and do good business, eventually I’ll be fine.’ But in this top five, there is nothing about making money. The guys for whom making money is in the top three almost always get themselves into trouble. And this is the essence of how Goldman has changed.”
Blankfein has little patience for these arguments, especially from an anonymous group of former partners. He seems inclined to continue to fight his critics. Blankfein thinks Goldman is plenty diverse at the top of the firm and then names one senior executive after another who came to the forty-first floor from areas of the firm other than trading. He said he “reads” more like “a lawyer, banker type” and very rarely did he do any
trading, in any event. He laments as “
at least ironic, and in some sense disproportionate,” the fact that Goldman’s mortgage business—which never generated more than 2 percent of the firm’s revenues and is much smaller than the mortgage business at other firms—has become such a lightning rod for criticism. But “one of the things you learn in law school is,” he said, “and also you learn this being a parent, if you’re criticizing somebody’s
behavior
they shouldn’t be able to defend themselves by saying other people behaved the same way, and get yourself out of it. It’s not exculpatory to do that. You learn that it’s not a defense in law and it’s not a defense by your kids.”
The ultimate test of his own and the firm’s longevity will be whether Goldman’s clients choose to stand by it in its hour of need. So far, so good, Blankfein said. “Look, we’re getting great support from our clients,” he said, a point conceded by people as diverse in their views about the firm as Schwarzman and Cramer.
But Blankfein said his agita has not diminished one iota. “I feel bad that I need—we’re supposed to support
them,
not the other way,” he said of the firm’s clients. “Nobody puts a gun to your head to take the job. Part of the job evolved in the way it did to deal with the scrutiny of the firm, and it’s not exactly what I expected when I became CEO. I want people to come here and feel really, really good about working here and being proud of the firm, which I think they really do. But to the extent that there’s a burden on that, that’s my responsibility. I want clients to be proud of the fact that they’re working with Goldman Sachs, not to explain it. I feel the weight of that, I do. I have a sense of duty about these things, and so I’m in.”
All in?
“Look, I have to be,” he concluded.
With that, Blankfein put on his suit jacket and a beefy security guard escorted him, via a hidden staircase, to the firm’s private dining area one floor above to meet with an unnamed dignitary, whom, he said, “I can’t be late for.” And then he was gone and the secret door closed behind him.
This book would have been inconceivable—literally—without any number of wonderfully dedicated editors, artists, publicists, marketers, and other professionals at the Knopf Doubleday Publishing Group. At the very top of this list is my friend and editor Bill Thomas, who agreed with me that Goldman Sachs was the next mountain we needed to climb together, treachery, crevasses, and all. I am immensely grateful to him for yet another brilliant edit of yet another large manuscript. I am also extremely appreciative of Sonny Mehta’s invaluable support as the visionary leader of Knopf Doubleday.
I would also like to thank, at Doubleday, in alphabetical order (please note the pattern): Maria Carella, Janet Cooke, Melissa Ann Danaczko (my hero), John Fontana, Suzanne Herz, Rebecca Holland, Cory Hunter, Judy Jacoby, Carol Janeway, James Kimball, Beth Koehler, Lynn Kovach, Beth Meister, Nora Reichard (the best production editor in the business), Alison Rich (publicist extraordinaire), Amy Ryan (an amazing copy editor), Vimi Santokhi, Suzanne Smith, Adrienne Sparks, Anke Steinecke, Kathy Trager, and Sean Yule. This is an extraordinary team of talented people who busted a collective gut to publish this book. It apparently does take a village. I would also like to thank my British team at Penguin Press: Helen Conford, Alex Elam, Rosie Glaisher, and Jessica Jackson.
Of course, a book about Goldman Sachs would not have been quite the same without the cooperation of the top executives at Goldman Sachs. At some point my access changed from virtually none to something more than that. For permitting me to interview the six living current and former senior partners of the firm, I suspect I need to thank, first, Lloyd Blankfein, the firm’s chairman and CEO (who generously made himself available when asked on several occasions, despite having much more important things to do), as well as John F. W. Rogers, the firm’s consigliere, and Lucas van Praag, who may be one of the more
resilient men on the face of the earth. Without their approval—although I may never know for sure—I would not have had the chance to speak with John Whitehead, Steve Friedman, Bob Rubin, Jon Corzine, Hank Paulson, Lloyd Blankfein (of course), as well as Gary Cohn, the firm’s president, and David Viniar, its CFO. The insights these men provided about Goldman were invaluable.
I would also like to thank others once (or still) affiliated with the firm, including: Cliff Asness, Josh Birnbaum, Geoff Boisi, Craig Broderick, Frank Brosens, Michael Carr, Jonathan Cohen, Jim Cramer, George Doty, William Dudley, J. Christopher Flowers, Bob Freeman, Jacob Goldfield, Jim Gorter, Betty Levy Hess, Bob Hurst, Bob Lenzner, Peter Levy, Bruce Mayers, Tom Montag, David Schwartz, Robert Steel, Alan Stein, the late L. Jay Tenenbaum, John Thain, Byron Trott, Peter Weinberg, Ken Wilson, and Jon Winkelman.
There were, of course, countless others I spoke with—best left unnamed—whose thoughts and wisdom rounded out my understanding of what is an immensely complex firm. Whatever else one thinks about Goldman Sachs, one cannot help but be impressed by the talent, intelligence, and single-minded determination of the firm’s top executives and its disciplined army. They—and those who preceded them—have left an indelible mark on what is a singular firm and on Wall Street itself.
Those who are not affiliated with Goldman Sachs but who were also immensely helpful include: Martin Armstrong, Fred R. Conrad, Michele Davis, Chuck Elson, Greg Fleming, Hank Greenberg, Michael Greenberger, Eric Heaton, Peter Kelly, Jeff Kronthal, Nicholas Lemman, Sandy Lewis, Nicholas Maier, Fares Noujaim, Stan O’Neal, Larry Pedowitz, Dan Pollack, Clayton Rose, Wilbur Ross, Steve Schwarzman, Eliot Spitzer, Joseph Stiglitz, Larry Summers, Matt Vogel, Tucker Warren, and Paul Wetzel. Again, there are others I would like to thank, but doing so by name would not serve them—or me—well.
One also must take note of the incredible cache of data that the U.S. Congress and the Financial Crisis Inquiry Commission made publicly available about Goldman Sachs and other Wall Street firms. Without this information—released by the Senate’s Permanent Committee on Investigations and its chairman, Senator Carl Levin, Democrat of Michigan—our collective understanding of what happened and why before, during, and after the Great Recession would be much diminished and our nation would be far worse off. While I have had my differences with Senator Levin, he does deserve extraordinary thanks, from me anyway, for making the documents about Goldman public. Senator, I salute you.
Once in a while, during the writing of this book, the Freedom of Information Act actually worked. I found this to be the case with documents I requested from the Federal Reserve Board, and I want to thank Jeanne McLaughlin for her help in getting public information to me. By contrast, the U.S. Securities and Exchange Commission’s FOIA office has perfected the art of obfuscation. I will probably be in the grave before that office fulfills my numerous FOIA requests, going back now some six years. (P.S.: The FOIA office at the SEC is seriously broken and needs to be fixed.)
I also want to thank the people at
Fortune, Vanity Fair,
the
New York Times, The Atlantic, Institutional Investor,
the
Financial Times, ARTnews,
Bloomberg, CNN, MSNBC, CNBC, the BBC, and NPR, who gave me plenty of opportunities throughout the past eighteen months to divert my attention from writing this book. I am extremely grateful to you all for allowing me to mix it up. Among them are Marilyn Adamo, Deirdre Bolton, Graydon Carter, Robin Cembalest, Laura Chapman, Mark Crumpton, Milton Esterow, Pimm Foxx, Leigh Gallagher, John Gambling, Toby Harshaw, Sylvia Hochfield, Al Hunt, Julie Hyman, William Inman, Bob Ivry, Emma Jacobs, Tom Keane, Andy Lack, Jaime Lalinde, Tim Lavin, Brian Lehrer, Betty Liu, Leonard Lopate, Ian Masters, Matt Miller (both of them), Kathleen Parker, Norm Pearlstine, Don Peck, Ken Prewitt, David Rhodes, Charlie Rose, Andrew Rosenthal, Erik Schatzker, Andy Serwer, Maryam Shahabi, David Shipley, Eliot Spitzer (again), Doug Stumpf, John Tucker, Nicholas Varchaver, and Chitra Wadhwani. A special thanks goes to Mark Pittman, at Bloomberg, who inspired me greatly and, alas, has passed to the next adventure far too soon.
Once again my usual cast of faithful and charming characters sustained me on the lonely eighteen-month trek up the mountainside. They always knew when to administer the proper dose of criticism and encouragement. Among them, in alphabetical order, are: Peter Davidson and Drew McGhee (they insisted on being first and I oblige them happily), Jane Barnet and Paul Gottsegen, Charlie and Sue Bell, Seth and Toni Bernstein, Clara Bingham,
Joan Bingham, Bryce Birdsall and Malcolm Kirk, Graham Bowley and Chrystia Freeland, Michael Brod, John Brodie, Mary and Brad Burnham, Jerome and M. D. Buttrick, John Buttrick, Mike and Elisabeth Cannell, Alan and Pat Cantor, Jay Costley, Marc Daniel (and Suzanne Herz), Robert Douglass, Tom Dyja and Suzanne Gluck, Don and Anne Edwards, Stuart and Randi Epstein, the Feldmans (all of them), John and Tracy Flannery, Charles and Patricia Fuller, Al Garner, Ina and Jeff Garten, John Gillespie and Susan Orlean, Alan and Amanda Goodstadt, Jessica and Drew Guff, Christine Harper,
Stu and Barb Jones, Sue Kaplan and David Karnovsky, Michael and Fran Kates, Jamie and Cynthia Kempner, Peter Lattman and Isabel Gillies, Jeffrey Leeds, Les Levi, Tom and Amanda Lister, Patty Marx and Paul Roosin, Dan McManus, Steve and Leora Mechanic, Hamilton Mehlman, Chris and Amy Meininger, David Michaelis and Nancy Steiner, John Morris and Marcia Santoni, Mary Murfitt and Bonnie Hundt, Esther Newberg, Joan Osofsky, Eric Osserman, Jay and Massa Pelofsky, Ron Pillar, Michael Powell, Liz Rappaport, Adam Reed, Stuart Reid, David Resnick and Cathy Klema, Scott Rostan, Steve Rubin (the maestro), Andy and Courtney Savin, Charlie Schueler, Pam Scott and Phil Balshi, Gil Sewall, Robert and Francine Shanfield, Lynn Sherr, Jim and Sue Simpson, Andrew Ross Sorkin, Josh Steiner, Jeff and Kerry Strong, David Supino and Linda Pohs Supino, David and Peggy Tanner, Sarah Twombly, Rick Van Zijl, Silda Wall, David Webb, Andy and Lauren Weisenfeld, Kit White and Andrea Barnet, Jay and Louisa Winthrop, Tim and Nina Zagat, and, of course, Gemma Nyack (last but not least).